The Motley Fool Green Investment Oppurtunities

5 Words That Change Everything
By Austin Edwards
September 16, 2009 | Comments (55)

Prepare yourself ... because few topics spark as fiery of a debate as the one we're going to discuss today.

What's your take?

In just a second, you can tell all of us exactly how you see things playing out. You can even rant about our government until you're blue (or red) in the face.

But first, a few points.

When President Obama signed the American Recovery and Reinvestment Act of 2009 into law, nearly $79 billion was set aside for renewable energy. Politics aside, that's an awful lot of money. And it may just be the beginning.

Don't forget, Obama pledged to "help create 5 million new jobs by strategically investing $150 billion over the next 10 years" and to "ensure 10% of our electricity comes from renewable sources by 2012, and 25% by 2025."

Fuzzy math?

According to Management Information Services, a Washington, D.C.-based economic research firm, between 1950 and 2003, U.S. federal government subsidies for renewable energy were approximately $111 billion -- meaning Obama is going to invest more in one decade than we previously had in more than half a century.

This looks like a major win for green energy -- and companies from FPL Group (NYSE: FPL) to Edison International (NYSE: EIX) and First Solar (Nasdaq: FSLR). But it pays to dig a little deeper.

When you do, you discover -- among other things -- that according to the Department of Energy, renewable sources accounted for 9% of electricity generation in 2008. That means Obama has three years to move the dial by just 1 percentage point.

Pot, kettle, black

Earlier this year, an article in The Huffington Post called out a similar discrepancy in Obama's rhetoric: "If this is how the impressive sounding goal of 'doubling alternative energy' is calculated, what Obama is essentially pledging is to simply maintain business-as-usual growth."

Combine this with the fact that oil prices have been cut in half, and that even wind super-evangelist T. Boone Pickens' now says the U.S. doesn't have the infrastructure needed to get clean energy to market, and you begin to realize why some people aren't jumping on the alternative-energy bandwagon.

5 words that will knock you off the fence

I admit, I love the idea of a stiff breeze charging my iPhone and a sunny afternoon lighting up Manhattan at night. But when it comes to green investing, I've been a bit of a skeptic lately. That is, until I opened The Wall Street Journal last month and saw this line:

"The money is coming back."

That's according to Ethan Zindler, head of North American research at New Energy Finance Ltd. And frankly, it's a bit of an understatement.

After all, Morgan Stanley (NYSE: MS) and Citigroup (NYSE: C) each took advantage of new federal incentives to invest more than $100 million in wind farms in August alone. Meanwhile, Spanish Iberdrola SA is throwing around cash-grant numbers in the $500 million range and is planning on investing another $2 billion.

And now even GE (NYSE: GE) is getting back into the game. It tells The Wall Street Journal, "We see opportunities and are pursuing them actively."

So are we -- and so can you
There are plenty of ways to play the clean-energy craze -- such as buying shares of Vestas or LDK Solar (NYSE: LDK). But our Motley Fool Hidden Gems team is busy uncovering less obvious -- and potentially much more profitable -- opportunities.

Primarily, they're looking for small, ignored, or overlooked companies with explosive growth potential. One that fits the bill is Jinpan International -- a Chinese company that makes cast-resin transformers. These require only a fraction of the upkeep of their oil-based predecessors. And because many wind farms are being built in desolate, hostile environments -- including some hundreds of miles offshore -- they're in very high demand.

In fact, over the past two years, Jinpan's wind products have gone from accounting for less than 1% of revenue to more than 13% -- and over the past five years, the top line has had an impressive 30% compound annual growth rate. Here are a few more favorable metrics.

Company
Insider 33%
Ownership
Sales 13%
Growth*
EPS 22%
Growth*
Net 15%
Margin*
ROE* 24%

Jinpan International *Trailing 12 months. Data provided by Capital IQ, a division of Standard & Poor's.

Not a one-trick pony
Wind isn't the only thing propelling Jinpan's growth, either. As part of its most recent "five-year plan," China is investing $65 billion in its medium-voltage electricity network, and China's Ministry of Machinery has very strict regulations that require all transformers in public buildings to be made of, you guessed it ... cast resin. So you can see why the folks on our Hidden Gems team are so excited.

But Jinpan isn't the only amazing clean-energy play they've uncovered. Another compelling opportunity, Otter Tail, has a major foothold in the "Saudi Arabia of wind" and pays a healthy 5% dividend.

Take the next step
Now I want you to use the comments section below to tell us if -- and how -- you are playing the clean-energy craze.

And because electricity -- clean or not -- doesn't pay for itself, I'm going to invite you to join Hidden Gems absolutely free for 30 days. Stay with us if you like it; pay nothing if you don't.

Either way, you'll get full access to all of our top small-cap stock picks and research, plus you can follow along as Motley Fool senior analysts Seth Jayson and Andy Cross use $250,000 of our own money to build a best-of-the-best small-cap portfolio